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LOS n: Review the role of debt ratings in capital structure policy.
Q1. Which of the following changes in debt ratings is most likely to have the greatest negative impact on a firm’s weighted average cost of capital (WACC)? A change in debt rating from:
A) BBB to BB.
B) AA to A.
C) BB to BBB.
Q2. Gervase Jackson is a student in corporate finance class. Jackson is unsure how debt ratings tie into a company’s capital structure and decides to talk to his professor after class. In their discussion, the professor makes the following statements:
Statement 1: The most common way that firms use debt ratings in conjunction with capital structure is to set a certain minimum debt rating that the firm strives to stay above at all times.
Statement 2: A change in debt rating from investment grade to speculative grade will significantly increase the firm’s cost of debt capital.
With respect to the statements made by Jackson’s professor:
A) both are incorrect.
B) only one is correct.
C) both are correct.
Q3. Assume that the debt rating given by Standard and Poor’s for Oswald Technologies drops from AAA to BBB. Which of the following reflects the most likely increase in the cost of debt for Oswald Technologies?
A) 500 basis points.
B) 10 basis points.
C) 100 basis points.
Q4. Katherine Epler, a self-employed corporate finance consultant, is preparing a new seminar concerning debt ratings and how they impact capital structure policy. As she is working on her presentation, Epler prepares two presentation slides that contain the following:
Slide 1: Lower debt ratings will increase the cost of debt as well as the cost of equity financing.
Slide 2: Managers will always prefer to have the highest possible debt ratings, all else equal.
With respect to Epler’s slides:
A) both are incorrect.
B) only one is correct.
C) both are correct.
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发表于 2009-3-4 14:11
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